EMI deal divestments: What does it mean for Universal?

As expected, deal approval in Europe was only possible after Universal conceded to wide-ranging concessions, in the main offloading nearly two-thirds of EMI’s assets in Europe, and some of its own. EMI units in France, Spain, Portugal, Belgium, Denmark, Sweden, Norway, Poland and the Czech Republic will all be sold, as with Universal’s Greek outpost.

In addition, UK-based EMI Records Limited, which includes the Parlophone label and catalogue, plus the Chrysalis, Mute, EMI Classics and Virgin Classics catalogues will all be sold (minus Parlophone’s The Beatles and Chrysalis’s Robbie Williams recordings), as will EMI’s share in the ‘NOW!’ brand. From the Universal side, Sanctuary, Co-op Music, King Island Roxystar and MPS Records will all be sold, as will the mega-major’s stake in Jazzland.

Meanwhile, demonstrating that one of the key concerns for European regulators was the increased power an expanded Universal Music will have when negotiating with digital music providers, the major also committed to not include so called ‘most favoured nation’ clauses in all future digital agreements (included new agreements with existing licensees) within the European Economic Area for the next ten years.

Such clauses, which say that if a digital firm subsequently offers a better deal to another music rights owner, then Universal must also benefit from the better rate, have been controversial throughout the emergence of the digital music market.

Although by Friday few of the concessions were a surprise, the promised divestments go way beyond what even pessimists at Universal expected the company would have to commit to when it agreed to buy the EMI record company from US bank Citigroup last year. The sale of Parlophone in particular is significant, even though Universal was allowed to keep the all important Fab Four.

In an interview with Billboard this weekend, Universal Music chief Lucian Grainge said: “When I speak, I speak with validity and truth – I would have much preferred to have kept Parlophone as part of EMI, but it wasn’t to be”.

Some have wondered if EMI without Parlophone is worth having for Universal, though worldwide the mega-major will get to keep more than two-thirds of its new acquisition, and the UK’s Virgin Records and America’s Capitol Records in particular are both valuable catalogues and frontline labels.

Universal insiders are also optimistic that they will be able to sell the EMI units now on the block for the same price they paid Citigroup to acquire them, while Grainge has said he is confident he can still find £100 million in savings by combining the two music majors into one. That, of course, will mean job losses, though Grainge couldn’t say how many.

Asked how he could say that reducing the number of major players in the music rights industry would create more choice and opportunities, Grainge told Billboard: “By growing the Virgin and Capitol labels. I don’t see this as reducing the number of majors but rather strengthening two of industry’s best-known labels with investment. The world in which I live is one where there’s more competition, more robust challenges and lower barriers to entry”.

He added: “We’ve been on the receiving end of a propaganda war: It’s spin and conjecture to say there will be less choice. We are going to create more choice for artists, and more entrepreneurial opportunities, with the investment we’re going to be making. I believe in working with a wide variety of entrepreneurs, as we’ve done with Cash Money and Scooter Braun’s Schoolboy Records, for example”.